Resources

By air

The rise of Krakow as a tourist hotspot has been accompanied by a marked increase in direct flights to the city’s airport in Balice, 11km to the west of the city centre. It has recently been renamed Krakow Airport, presumably to make this easier for foreign guests than the previous title, “Miedzynarodowy Port Lotniczy im Jana Pawla Krakow Balice” The website, with Polish and English versions, can be found here: http://www.lotnisko-balice.pl/

Travelers are now spoiled for choice when it comes to choosing the cheapest and most convenient flights.

Many European national carriers, including British Airways ( www.ba.com ), LOT ( www.lot.com ), Czech Airlines ( www.csa.cz), Austrian Airlines (www.aua.com), Aer Lingus (www.aerlingus.com) and Lufthansa (www.lufthansa.com) offer regular direct flights to Krakow from a range of European destinations.

In addition, low-cost airlines have embraced Krakow in the past few years.

As at mid-2008, the following low-cost airlines offer direct flights to and from Krakow with destinations listed:

• www.EasyJet.com – from Belfast, Bristol, Dortmund, Edinburgh, Liverpool, London (Gatwick and Luton) , Newcastle and Paris.
• www.Ryanair.com – from Birmingham, Dublin, East Midlands, Edinburgh, Glasgow Prestwick, Liverpool, London Stanstead, Milan and Shannon.
• www.CentralWings.com – Amsterdam, Athens, Barcelona, Bolognia, Lille, London Gatwick and Rome.
• www.Norwegian.no/ - Oslo, Bergen, Stavanger and Trondheim.

The above list is not complete, but current information can be found on the Krakow airport site, address listed above.

*German Wings and Sky Europe are no longer flying from Krakow, but still fly from Katowice,

Katowice airport (www.gtl.com.pl/eng/index.html) is approximately an hour and a half from Krakow via mini-bus, and can be a cheaper option to get to Krakow, with a wider range of European destinations.

From the airport to the town centre:

Balice airport is only 11km from the city centre. A taxi-ride should take no longer than 20-30 minutes, depending on the time of the day and cost no more than 50-60 PLN (approximately €15) during daylight hours, and around 80 PLN at night. Calling a taxi from the airport (e.g. Barbakan, 12 9661) is also recommended, as some taxi drivers have been known to rip off unsuspecting foreigners, though thankfully this is rare.

Two public buses (numbers 194, 208) service the Krakow city centre from Balice Airport. Tickets cost 2.50 PLN and you will need to buy larger bags/suitcases a ticket as well. Bus drivers will roll their eyes and probably refuse to accept large banknotes. They will definitely refuse any currency other than Polish zloty. Travel time to the city centre is approximately half an hour and the bus can be overcrowded.

Since 2006, there has been a train service linking the airport and the city centre. The train station at the airport is approximately 200m from the arrivals terminal and a shuttle bus operates regularly. The trip to the city takes approx 15 minutes, and the price per ticket is approximately 6 PLN. The terminus in Krakow is the central train station, adjacent to the new Galeria Krakowska shopping centre, and only five minutes walk from the old town centre. From the city centre to the airport, trains normally leave every half an hour.

By rail:

Krakow is well-served by European rail connections. Warsaw is two and three quarter hours away via an express train which leaves approximately hourly during the day (no stops), Tickets cost just under 100 PLN one-way. There are often weekend specials which will halve the cost for a return trip. There is a slower train to Warsaw which takes approximately 5 hours and costs approximately half as much. It will stop at a lot of destinations in between Krakow and Warsaw, such as Kielce and Radom.

Budapest, Vienna, Prague and Berlin are all approximately eight hours away via rail. There are also connections to destinations such as Moscow, Odessa (on the black sea in Ukraine) and Bucharest.

In general, domestic Polish trains are slow but punctual. The main train station (Dworzec Glowny) is a short walk to the NW of the market square.

By bus:

Extensive regional, national and international bus networks operate through Krakow. The central bus station is next to the central train station and can be accessed by walking through to the opposite side of the tracks (past platform 5).

The purchase costs vary according to the price of the property, with relative costs as a percentage of purchase cost decreasing the more expensive the property is.

Stamp duty 2%

This charge only applies to secondary market purchases. If you are buying on the primary market (i.e. a new build apartment from a developer), then instead the price will include VAT charged at 7%.

Note – if you also buy a garage or parking space in a new development, VAT is charged at 22%, a different rate to that of the apartment

Notary fees 1-1.5%

The cost of the notary will vary depending on whether there is only one contract (a final contract) or also a preliminary contract. The cost of the notary agreement is normally flexible, and should be negotiated.

The payment made to the notary will comprise several different costs:

• - The cost of the notary, which can be negotiable.
• - Court fees: up to 1000 PLN for the notary to register a new mortgage book entry for the apartment and the buyer, which will result in the issue of title deeds to the property.
• - Cost of copies of the notarial act. In the case of a preliminary contract, the minimum number of copies required will be two, one for the buyer and one for the seller. If the buyer is applying for a mortgage, then a further copy will be required by the bank. In the case of a final contract, then there can be up to 7 copies required. One for the buyer and one for the seller, plus copies provided to the court (for registration, as per above), the tax office and the city office (as foreigners buying property need to be specially registered).
• - Here is a breakdown of the notary costs for a recent transaction. The cost was for a final contract on a new build property valued at 300 000 PLN.
  Notary Cost 1400 PLN + 22% VAT (1708 PLN)
  Court costs 720 PLN
  Copies of Contract, 7 x 42 PLN (294 PLN
  TOTAL = 2722 PLN
  In this case, there was also an earlier preliminary notary contract, which cost less, approx 2000 PLN.

Agency fees up to 3%

Most Polish real estate agencies have a commission charge of around 3% on the purchase of residential property. Sometimes this fee is negotiable, depending on the value and complexity of the transaction.

Other costs:

Lawyer: approximately 250-350 PLN per hour

The notary is an impartial intermediary between the buyer and the seller, and does not represent the specific interest of the buyer, apart from adhering to the laws in Poland. Therefore, many investors choose to add an extra layer of security by employing a lawyer to check contracts for them before signing. This should not be more than a few hours work for the purchase of a residential apartment, including a consultation. Larger investments will naturally take more time.

Overall, buying a property in Poland is a relatively simple process and can be completed with either one or two contracts. If the buyer is in a position to buy a completed property quickly and has the funding in place, the transaction can be completed with one final contract. More often, however, a preliminary contract will be required which commits both parties to the sale of the property, but allows for arrangements to be made before completion of the sale. A preliminary contract may be used for example if the purchaser needs to raise finance, or in the case of a renovation project, where work will need to be completed to finish the property before the sale can be finalized.

Buying a Property in Poland using one Final Contract.

This is the simplest way to purchase a property in Poland, when both parties are in a position to move quickly on the sale. After agreeing the price with the vendor, a contract will be drawn up by a notary for the sale between the two parties. For such a transaction, the notary should have an off-the-shelf contract which they can prepare inexpensively and quickly.

Prior to the signing of the contract, which takes place in the notary’s office, the notary will check the title of the property to ensure that there are no undisclosed claims or encumbrances registered against it, such as undeclared mortgages. They will also check that the name registered on the title corresponds with the person/s selling the property.

Once the terms of the contract have been agreed, the contract is signed by both parties and stamped by the notary. The notary contract is the buyer’s proof of ownership and the notary is required by law to instruct the land registry transfer the title of ownership into the purchaser’s name, which can take up to 3 months.

After signing the contract, the purchaser is required to transfer the funds to the vendor, normally by bank transfer. It is an advantage to have the funds cleared in a Polish bank account as this means the transfer can be executed in one day (or same day if the same as the vendors bank) as opposed to up to three days if the transfer is being made from overseas.

Buying a Property in Poland using a Preliminary Contract

Not every investor has the cash upfront and ready to purchase a property. This may apply to buyers for who need to sell shares or release money from a deposit account, or perhaps draw down a mortgage after receiving a loan promise. On the other hand, the vendor may not be in a position to complete the sale immediately, for example, he may need to vacate the property, or complete some work on it before the sale can complete.

Nevertheless, before committing to any of the above, both parties will want a legally-binding commitment to ensure that the sale will go through. This can be achieved by entering into a preliminary contract, which typically will require the purchaser to put down a deposit of between 10-30% which can often be negotiated with the seller. The preliminary contract is signed with a notary.

During the preliminary contract phase, a date is set for the signing of the final contract, which again is negotiable and will depend on the position of both the buyer and seller. A typical period can be anything up to 3 months, even longer if you are entering into a contract to purchase an off-plan property.

Sometimes, a preliminary contract will not be signed in the form of a notarial deed, but will be a civil contract prepared by a lawyer. Such contracts are much cheaper, but are less well recognized by Polish law in the event of a dispute.

The procedure for the signing of the final contract is described above, and final contracts must be executed in the form of a notarial deed.

Putting down a Reservation Deposit on a Polish Property

Before entering into a preliminary contract, it may be possible to make a reservation deposit on a property. This may be done in a situation, for example, where the purchaser would like the property to be taken off the market with immediate effect to prevent it being shown to other potential buyers. A reservation deposit is typically non-refundable and not legally-binding, and requires good faith on behalf of both parties in order for the contract to be entered. Typically, a reservation deposit will amount to between 5000-20000 PLN.

Buying a property in an off-plan development

In Krakow, an off-plan development generally takes one of two different forms.

• The renovation of an old kamienica – a large townhouse/tenement building – which is normally unoccupied and close to the city centre.
• A new-build development which has not yet started construction or is under construction, but for which plans will be presented.

In each case, the developer will normally propose layouts of each of the apartments that he intends to build, which are sold by the square metre. It should be noted, however, that particularly in the case of completely new developments, the layouts and even sizes of the apartments can be adjusted according to the requirements of the purchaser.

A pre-agreement contract is always used when you purchase a property off-plan in Poland, in which the required specifications, schedule of building works and schedule of payments for the apartment will be laid out. Normally, penalties for both parties are written into the contract stating that, for example, if either the payments are not made by the buyer or if the building work is not completed as described (or within the required time frame), penalties must be paid.

Off-plan developments in Poland are characterized by fairly strict payment schedules in which the payments are made as the construction work is completed, unlike for example the UK, where work will generally be carried in advance of required payments from the buyer. Recently, we have noted that there is an emergence of more UK-style payment schedules in Poland, largely in response to foreign interest in such deals and more competition between developers to offer. Such deals can be in the form of a 10% payment made upon signing a preliminary sales agreement, with the remaining 90% due upon completion and hand-over.

Furthermore, once your new-build property is finished, Hamilton May Real Estate can recommend building inspector’s to check the apartment (“snagging”) and provide a report as to the quality of the build finish and adherence to specified construction and use of materials. This report should be completed before the signing of the final sales agreement to ensure there is an opportunity to ask the developer to rectify any faults.

Updated June 2008

Prices in the residential property market of Krakow stopped rising around the end of the summer in 2007, and have exhibited stability for most of the last year, characteristed by a large fall in the number of transactions being conducted, particularly over the course of last winter, together with a larger amount of supply, particularly on the primary market.

A similar trend can be observed in other major Polish cities – Warsaw, Wroclaw, Tri-City - which experienced a similar boom to Krakow, particularly in the period after EU accession in mid-2004. The experience was slightly different in the Polish cities of Lodz, Poznan and Katowice, in which prices began to move higher during 2006 and from a lower base.

The recent stability of prices can be viewed as a positive for new investors in Poland, or existing investors who wish to increase their holdings. The fact was, prices in Poland were not able to continue rising at the pace they did during 2004-2007, and a “cooling off” period was necessary. Nevertheless, several important factors indicate that the pent-up demand within Poland for property will still exceed the supply of new properties which developers can deliver to the market.

Supply

The deficit of apartments in Poland is still estimated to be around the 1 million mark. Currently in Poland, the number of apartments per 1000 inhabitants is 338, which compares to 472 in Western Europe. In addition, there is a large gap between Poland and Western Europe when considering the average size of dwellings, their standard and age. The fact remains, the majority of Poles still live in ageing block flats. In the region of 85% of the Polish population live in dwellings completed before the fall of communism in 1989.

In the past 5 years in Poland, approximately 600 000 new apartments have been constructed, representing around 5% of the housing stock. The average apartment size is increasing, and since 2007 a growth in the new supply of housing can finally be observed. Growth in supply is expected to continue in 2008, though the absence of zoning plans for many urban areas in Poland still represents a barrier to supply. In recent years, the construction industry has also suffered from labour shortages as workers have taken advantage of better paid work in Western Europe.

Demand

The strong demand from the Polish consumer for new housing has resulted from several factors. Most important has been the growth in the accessibility of mortgages to the average Pole, which is the result of increasing wages (and household wealth), and more competition in the local banking market.

In addition, the baby boomers born during the early 1980’s (the martial law years) are now entering the workforce and have a strong desire to leave their parent’s home and get on to the property ladder. Also, Poles in the 30-39 age bracket are wanting to move into larger apartments or houses due to the growth of their families. The rental market has not offered a substitute, as the supply is small and the rents are high and rising.

Future direction

Most analysts are pointing to a period of relatively stability in prices throughout 2008 and 2009, with a return to steady growth predicted from 2010 onwards.

As stated, strong and unmet demand for new property is still evident in Poland, wages continue to rise strongly (currently approx 10% per annum), consumer spending is increasing by 15-20% per annum and economic growth is around 5-6% per annum. The return of young Poles who have been working in the UK, Ireland and other parts of Western Europe is already evident, and Poland continues to benefit from access to structural funds from the European Union which are helping improve its infrastructure and stimulating the economy.

Krakow

Considered the jewel of Poland, Krakow is an historic city which managed to escape the bombing of the Second World War which decimates so many Polish cities. The growth of tourism in Krakow has been strong, particularly since EU accession. The city has always been a strong drawcard for domestic tourists, but has inceasingly come onto the radar of foreign tourists, particularly the weekend market serviced by low-cost flights to the city’s airport in Balice. The city has also witnessed strong growth in the creation of new jobs in ‘outsourcing’ and ‘offshoring’. Many international companies have been attracted to Krakow due to the large number of highly qualified graduates from the local universities. Companies such as Shell, IBM, Philip Morris and UBS have all set up large local centres.

The current average price for apartments in Krakow stands at approximately 7500 PLN/m², but this is based mainly on new-build developments in the suburbs, which dominate the supply. Throughout 2007 and 2008 a significant amount of new developments have been offered, resulting in much more choice for the average buyer. As a result, buyers have been able to be more discerning, choosing the offer which best suits their criteria, and even negotiating price discounts with developers.

The Old Town

Unsurprisingly, prices in Krakow are highest within the old town, a UNESCO protected site, and one of Europe’s most well-preserved medieval cities. Life in the city revolves around the Rynek (old town square), the largest in Europe. Many fine cobblestone streets surround the Rynek. A combination of lack of supply and the desirability of the location means that residential prices in the old town are currently ranging from 15000-25000 PLN/m².

The city centre districts outside of the Planty

Just outside of the planty, the park which surrounds the old town, but still within a 5-10 minute walk of the Rynek, prices are more reasonable, ranging from approximately 9000 to16000 PLN/m², depending on the condition and quality of the property. For example, an investor can buy an unrenovated apartment in an unrenovated building for approximately 9000-11000 PLN/m² in such areas. Renovation costs could total between 1000-2000 PLN/m². Some high-end redevelopments of old buildings, in which apartments are sold ‘off-plan’ are priced between 12000-16000 PLN/m², though potential investors should factor in the cost of internal finishing of the apartment (kitchen, flooring, bathroom etc) which could rise to 1000 PLN/m². The highest prices are for new developments in the city centre with underground parking and high security levels (24 hour porter). Hamilton May Real Estate has witnessed continued strong demand for such apartments.

The town centre region to the West and North-West of the old town – areas such as Nowy Swiat and Piasek - tends to be marginally more desirable than the other directions, as the roads are both quieter and leafier, particularly within the second ring road which is easily visible on a map. In these high-class residential areas, you will find an abundance of beautiful turn-of-the-century architecture which is so desired by many foreign investors

Kazimierz

The old Jewish district, Kazimierz, is a short distance to the South-East of the old town. Prices are comparable to the districts just outside the planty described above (9,000 to 14,000 PLN/m²), and the area is equally desirable, but for different reasons.

Kazimierz was for many years run-down, but is gentrifying rapidly and is now identifiable not only by its Jewish history (synagogues, museums, cemeteries) but also by its cosmopolitan café, bar and restaurant scene. It is also the bohemian hub of Krakow, home to galleries and the scene of regular cultural events.

As an example, if you wished to purchase a 1 bedroom 50 m² unit within a 7 min walk of the city centre or perhaps in Kazimierz, you should expect to pay approx 12,000 pln/m² for a renovated or good condition property meaning a cost of 600,000 PLN.

Old Podgorze

The Old Podgorze district is characterised by turn of the century architecture and perhaps the only truly distinct high street location outside of the city’s old town, along the road of Kalwaryjska/Limanowskiego Street. Along this high street is also the unique and attractive Rynek Podgorski market square.

Old Podgorze is an appealing residential area for locals with the open space provided by its two parks, and its border on the Wisla River. The area is currently well established as a ‘service’ area, with many utility shops providing amenities such as car repair service centres, plumbing equipment shops, fitting shops etc.

The Old Podgorze district is well connected to Krakow’s Old Town by tram and bus through the major arteries of Krakowska Street and Starowilsna Street. Travel time by tram is approximately 5 minutes and by foot approximately 15 minutes. It is also well connected to out of town locations by tram and bus.

Historically, Old Podgorze has been largely overlooked by the Krakow property market but has always been favoured by students as a less expensive but convenient location in which to live. However, more recently price increases in the in the core city centre locations, have resulted in a classic property price “ripple” effect outwards, and areas such as Podgorze have become increasingly desirable. Today, Podgorze is considered to be the most up and coming district with the most potential for development and capital growth within Krakow. Many investors and developers are now casting their eyes over this area as a sound investment location.

Anecdotal evidence of the regeneration of Podgorze is everywhere:

• The high street has been completely resurfaced, with new tram lines and underpasses installed throughout.
• A new four star Qubus hotel has opened on the riverfront.
• The recent overhaul of Podgorze’s Plac Bohaterow Getta square.
• The zoning project of Zablocie has been completed which covers a significant part of Podgorze aimed at facilitating development of this previously industrial area. The first new residential development in the area, Garden Residence, has recently started being sold ‘off-plan’.
• A new shopping plaza and cineplex, Galeria Kazimierz, completed in March 2005, is within five to ten minutes walk from Podgorze.
• There is a wave of new residential developments in the area. The Vistula shirt factory on the riverfront recently changed hands to a local property developer and is awaiting planning consent for a large residential complex.
• Schindler’s factory to be renovated into an art museum by local entrepreneur. Krakow deputy mayor Tadeusz Trzmiel was recently quoted as saying: "The establishment of a museum in this historic factory is part of the rehabilitation of the industrial area of Zablocie”.

Currently prices in Podgorze range from approx 7500 PLN/m² for unrenovated properties to 12000 PLN/m² for top-end new builds and renovated historic properties.

Other desirable areas

Nowa Wies, Czarna Wies, Zwierzyniec: these districts are outside the second ring road to the west of the old town, and offer leafy streets with a combination of period and newer buildings. These areas are located close to the AGH University, beautiful Park Jordana and the vast Blonia field. Walking distance to the old town is approximately 15-20 minutes.

Kleparz: north of the old town, 5-10 minute walk. Near Nowy Kleparz market and Dluga Street, a main shopping thoroughfare.

Stradom: located between the old town and Kazimierz, many desirable buildings and quiet streets.

Wesola: to the East of the old town, many leafy streets. However, the area is intersected by a main train line.

Salwator: located slightly South-West of the old town, this district is sandwiched between Krakow’s largest park, Blonia, and also the Vistula river. It is considered by locals to be one of the most desirable residential districts in the city, and is much in demand because of its relative tranquility and short distance from the city centre.

Wola Justowska: this region is again to the West of the city, but further out beyond the greenery of Blonia and Salwator, en-route to Balice airport. This is the district of choice for Krakow’s wealthy and is dotted with substantial residences which often match the price per square metre of the more desirable central districts.

Suburban Krakow and new-build residential developments

Further out from the centre, prices are significantly lower, with a large supply of new build developments, which are primarily being bought by Poles. Such properties sell for 5500-8000 PLN/m².

If you are considering buying such a property off-plan, it is advised that you take the time to visit the site. Whilst some developments can appear attractive on paper, sometimes the surrounding buildings, such as Soviet built panalaks (blocks of flats) may detract considerably from new build property.

Off plan and new build developments in the centre of Krakow

New build developments do occur in and around the centre, but are less common as brown-belt land is scarce. Quality central new-build developments (such as Vistula Terraces, Noble Residences, Garden Residence) sell for 7500-12000 PLN/m² and will most likely come with parking (typically 30000-40000 PLN per space + VAT).

Centrally-located developments are more typically renovation projects of traditional town houses/buildings (Kamienica), although frequently new extensions or floors are added. Such projects are becoming increasingly popular with foreign investors as it allows them to purchase a traditional apartment, renovated, with new installations. They are also sold off-plan and are more often than not sold out in the early stages of construction, however, rarely come with parking facilities, which can be viewed as a disadvantage. Because it is difficult for developers to buy entire buildings in the centre (due to the presence of ‘protected’ tenants), such developments are in short supply and the prices are high in comparison to the rest of the property available in Krakow.

Prices in Krakow compared to Warsaw

The average prices in Krakow are cheaper than in the capital, Warsaw, where the average price per m² is almost 9000 PLN (compared to 7500 PLN in Krakow). However, it is difficult to make comparisons between the two cities as the geographical layouts are very different. Warsaw is much larger and more spread out, so districts overlap and are more difficult to define than in Krakow, which is much more compact and centred around the three old areas of Stare Miasto, Kazimierz and Stare Podgorze.

Location

Poland’s central location between the East and the West of Europe, between Russia and Germany has historically been a disadvantage to the country. However its location now is undoubtedly an advantage, as a bridge between these two major economies and also East and West Europe as a whole.

Population and demographics

The population of Poland is about 38.6 million which is about 5% of the total population of Europe. This makes Poland the eighth largest country in Europe and the twenty-ninth largest in the world. In addition, 30 million of the population are under 35 years old, making it a very young and dynamic country.

Economy

The following table highlights some of the key economic indicators in Poland for 2004, 2005 and projections for 2006.

Source:Central Statistical Office, National Bank of Poland, Center for Social and Economic Research

Growth

Relative to the more stagnant economies of developed European Union (“EU”) countries, such as Germany and France, the Polish economy has been growing strongly and is expected to continue to grow by an average of 5% per annum for the next ten years.

Economic growth is a key driver of property price growth and will help create the emerging and more affluent middle class in Poland. This will generate domestic demand for property and continue to push prices up.

Unemployment/Labour force

The unemployment rate in Poland is approximately 18% (although significantly lower in urban areas). This is the highest in the EU and the fifth highest in Europe, and compares with a European weighted average of 9%. However, Poland’s labour force is highly educated, skilled, inexpensive and has a good work ethic. The average Polish wage (6,000 Euros or approximately 4,050 GBP per year) is about a quarter of the average EU wage (24,250 Euros or approximately 16,370 GBP).

Unemployment figures are predicted to fall to around 8% over the next five years while increases in gross wages slowly converge towards current EU levels. These factors should have a positive effect on property prices.

Inward investment and EU effect

Poland joined the EU in May 2004 and is expected to benefit from substantial inward investment over the next 5 years. The EU alone is expected to invest 40 billion Euros into Poland’s infrastructure out of a total of 91 billion Euros*.

Foreign investment is undoubtedly playing a progressively more important role in Polish economic growth. Between 2003 and 2004, foreign investment rose by 23% to 6.45 billion Euros and was even higher in 2005**. This figure is predicted to rise to approximately 8.5 billion Euros in 2006. In 2004, foreign investors created approximately 15,000 new jobs and around 20,000 in 2005. This figure is also likely to grow through 2006.

In terms of attractiveness to foreign investors within Europe, Poland continues to assert itself as a market leader. In a recent survey Poland came top of European countries in terms of investment potential***. The key reasons for this were availability of land for investment; low real estate costs; low labour cost; high potential for growth; high productivity and the impending harmonisation of national laws with EU’ regulations.

It is anticipated Poland will adopt the Euro as its official currency before 2010. Given all of the above, it seems clear that a positive inward investment climate in Poland is set to continue.

* Warsaw Voice (Andrzej Ratajczyk).

** PAIiIZ Statistical Office.

*** Ernst & Young global business survey.

Mortgage ratio

Currently only an estimated 14% of Poles have residential mortgages. This is likely to increase over the next 5 to 10 years, as the EU average is more than three times this figure. The total value of mortgage debt in Poland is 6% of GDP, compared to levels in other EU countries, such as Ireland or Portugal, where it is in excess of 50%*.

The increase in competition amongst the mortgage lenders following EU accession and reduced bureaucracy is also likely to increase the level of mortgage lending. Greater affluence will also increase the propensity to borrow.

This will make the property market more accessible to more people and increase demand. Indeed in the last year mortgage brokers, such as Open finance and Expander, have opened high street “shops” where customers are able to enquire about, and arrange mortgages.

* ING BSK analyst Bartosz Paw³ow.

Persons per household

At the moment the average number of persons per household in Poland is significantly more than other EU countries. It is expected that over the next 10 years the average number of people per household in Poland will fall by 25%. Again this will contribute to increased demand for accommodation.

Polish workers returning from overseas

After joining the EU in 2004 there was a large migration of Poles (especially those aged 18 to 30 years old) to other Western economies within Europe (principally the UK, Ireland and Sweden). 230,000 Poles have officially registered to work in these countries, although the unofficial figure is likely to be much higher.

These workers have exported their products, skill and ethos of hard work, inflicting the biggest shake-up in some Western Europe labour markets for decades.

Anecdotal evidence suggests that the majority of short term migrants eventually return to their home country. The impact on the Polish economy when these workers return from overseas should not be underestimated. Not only will they return with significant savings to be invested in Poland, but they will also return with new skills, contacts and experience established in more developed working environments.

Urbanisation

Currently 62% of the Polish population live in urban areas compared to a weighted average of 74% in all of Europe. There is a current trend of people moving from the countryside into cities and by 2015, 69% of the population is predicted to live in urban areas. This amounts to an increase in the urban population in Poland of 2.16 million people. This will lead to increased demand for urban property.

Location

Located in the south of Poland, Krakow is a two hour drive from both Slovakia and the Czech Republic. In addition it is a great base for exploring the Zakopane and the Tatra National Park, located in the Carpathian mountain range on the Polish – Slovakia border.

Krakow is at the crossroads of Germany and the Ukraine as well as Scandinavia and the South of Europe.

Poland’s capital of culture

Krakow is undoubtedly one of Europe’s most beautiful cities and unquestionably Poland’s cultural capital. Brighter than Vienna, cheaper than Prague and ever so slightly eccentric, the old royal capital and intellectual epicentre of Poland is a work of art. Full of towers, cathedrals, castles and a warren of beautiful cobbled streets, unlike many Central European cities it was miraculously untouched by World War II and was named the European city of culture in 2000. The Old Town (Stare Miasto) is dominated by the magnificent Main Market Square, reputed to be the largest in Europe. Krakow was home to Pope John Paul II who served the city for many years as its archbishop. In the likely event that John Paul II should become beatified, it is likely that Krakow with become a pilgrimage destination for millions of Catholics.

Centre of academic excellence

Krakow is Poland’s equivalent of Oxford or Cambridge in the UK and has historically always been the aristocratic and academic hub of Poland. Host to Poland’s most prestigious university, Jagallonian, and an additional eighteen other colleges and centres of higher education and nineteen science institutions, approximately 170,000 students live in Krakow.

Transport links

Air

Krakow’s Balice International Airport is now serviced by nineteen airlines including many of the new “budget” airlines, such as Easyjet, Ryanair, Central Wings and Sky Europe. This has contributed to the explosion in the number of tourists visiting Krakow in recent years.

Balice Airport is 30 minutes by bus to the city centre or 20 minutes by taxi. In addition a proposed new high speed rail link to the airport will result in a reduced travel time by train to the city centre of 12 minutes.

A second airport terminal is also under construction at Balice Airport, which is being built to cope with growing demand from the 8 million people living within a 100 kilometre (90 minutes by car) radius of Krakow. This is by far the biggest catchments area in terms of population of any airport in Poland.

Source: Balice international airport website

Rail

Krakow is well connected to Warsaw by train with express trains running hourly to the capital with a travel time of approximately 2 hours and 40 minutes.

Road

There is still much room for improvement in Krakow’s roads, with currently only 3% of Poland’s roads meeting European standards. As a result large portions of European funds are being invested in the road infrastructure, such as the renovation and extension of Krakow’s main ring road, and the modernisation and expansion of the A4 motorway from Krakow to the German border. Once complete it is anticipated the journey time to the German border will be only four hours.

Business and technology centre

A number of companies have invested heavily in or relocated to Krakow. Examples of this are:

• Philip Morris (USA) paid 218 million Euros for 33% of the Krakow Tobacco Plant.
• Carrefour (France) has built a 25 million Euro shopping centre.
• Ikea, Tesco and Casino are other examples.

Krakow Technology Park (“KTP”) was set up in 1998. The main reason for opening KTP with a status of “special economic zone” was to support industry restructuring. This objective has largely been fulfilled. Currently Krakow is regarded as a high-tech development city and KTP is a showcase of this.

Tourist destination

Krakow’s old town was included in the UNESCO original list of world heritage sites. The region also boasts three other UNESCO sites within a 50 kilometre radius of Krakow, including Auschwitz.

Krakow is currently undergoing a tourist boom. Between 2003 and 2004 the number of tourists grew by 1 million to 6.4 million and figures for 2005 are estimated to be around 10 million. In 2004, foreigners accounted for 57% of tourists, up from 51% in 2003.

Given a foreign visitor spends on average 193 Euros compared to 76 Euros for a Polish visitor, this is likely to further boost the Krakow economy.

We would like to inform you about some of the most important changes in act on tax on civil law transactions, which are in force from 01.01.07.

Property Krakow do not take any responsibility for any inaccuracy in the information provided on this article.

1. With date of 01.01.07 are cancelled tax exemption for loans:
2. • for starting and conducting business activity
   • from shareholder of the company
3. It is set a tax exemption for loans from members of the closest family but there are several requirements to meet.
4. At present duty to pay civil-law tax is set obligatory on both parties of the transaction. From 01.01.07 tax shall be paid by buyers, donee, purchaser of goods and with company’s agreements – the company.
5. It is set penalty fee in the value of 20 % from loan agreements and so-called “incorrect deposits” if civil-law transaction tax is not paid and the taxpayer is referring to the fact of that activity agreements to Inland Revenue. It happens for example when Inland Revenue asks about financing of property purchase.
   The same 20 % penalty fee is set in tax from inheritances and donations.

CORPORATE INCOME TAX

We enclose a listing of some of the most important changes in corporate income act which are in force from 01.01.07

Passenger car

Art. 4a p. 8-12, and art.5c applies definition of passenger car, similar like in act on VAT

Moment of income taxation

Art 12 p. 3a,c,d, says that income taxation will be in the first day of following events: delivery of goods (date of sell of property law or date of completion of rendered services), date of invoice issuing or date of invoice payment.

In case when services are accounted in time /so-called constant services/ - for moment of income taxation is taken the last day of accounting period set in agreement or on invoice but at least once a year.

In case of delivery of electric energy, heating or similar are in force rules for constant services.

Act do not set different taxation date for services like leasing, tenancy (or similar), telecommunication, municipal economy, etc.

Tax deductible costs and costs to book up in period longer than one month

According to the art. 15 p.1 cost is considered as tax deductible cost which are spent not only in aim of achievement an income but also to preserve or secure the source of income.

Costs which can be directly linked to the income are supposed to be booked up in proportion to period which they concern – costs linked indirectly are supposed to be booked up in the tax year of its bearing.

To bear a cost is to book it up on the basis of invoice or other booking document.

Representation and non-public advertising

Art. 16 eliminates non-public advertising. Every advertising costs are tax deductible costs in the whole value. But the expenses on gastronomic services, foods and drinks (also alcohol) are no longer tax deductible costs.

Expenses on medical services for employees

The costs of medical services for employees starting from 2007 are considered as tax deductible costs.

Depreciation 50 000 EUR

According to art. 16k small taxpayer and these who are starting the business (does not include transformed, united or splitted entities) have an opportunity to write-off the whole value in one month of tangible assets which are listed in the group of 3-8. Total written-off value shall not exceed 50 000 EUR.

Used properties

According to art. 16j buyers of used real properties for commercial purposes depreciate it taking under consideration period of depreciation done by previous owners. Period of depreciation shall be 40 years (for new property used for commercial purposes) minus period of depreciation done by previous owners, but not shorter than 10 years.

Exchange rate differences

According to art. 9b taxpayer is allowed to apply exchange rate differences for taxation purposes in the way he applies them for accounting purposes but only if taxpayer is obliged to mandatory external audit by chartered accountants.
According to art. 15a exchange differences in plus shall be added to the revenue and exchange differences in minus shall be added to tax deductible costs.
As a date of payment for the differences calculation purposes shall be accepted a day of debt's settlement in any form also recoupment way of payment.

Taxpayer's duties

As a payment, which causes necessity to pay source tax is considered realization of debt in any form also recoupment or capitalization of the interests.

CIT 2 form

According to art. 25 it is eliminated duty of submitting monthly income tax declaration. It is necessary only to pay monthly income tax advances.

PERSONAL INCOME TAX

We enclose a listing of some the most important changes in act on natural persons income tax which will be in force from 01.01.07

For the details please contact us and we will try to make it more clear for you. For the reason of many changes we only indicate some of them.

Place of residence

According to art. 3 p.1a is set definition of place of residence as a center of live activity in Poland or staying in Poland for over 183 days in a tax year.
According to art. 4a priority to establish place of residence are regulations in agreements avoiding double taxation.

Business activity

Art. 5a p. 6, art 5b brings new definition of business activity. It is activity which is organized, permanent, with regardless of the result of such activity, conducted not only to get the profit.

There are also added some regulations about working in quasi-employee conditions.

Passenger car

Art. 5a p. 19, and art.5c bring definition of passenger car, which is similar to that from VAT act. Cars bought before 01.01.07, are still under old definition.

Together helpmate's tax settling

Together helpmate's tax settling is allowed when the joint propoerty between wife and husband lasts the whole tax year.

Moment of income taxation

Art. 14p. 1b-1i sets new regulations about moment of income taxation. It is the last day of accounting period agreed in the contract for service providing or indicated on the invoice but not less frequently than once a year.

Exchange rate differences

According to art. 24c taxpayer is allowed to apply exchange rate differences for taxation purposes in the way he applies them for accounting purposes but only if taxpayer is obliged to mandatory external audit by chartered accountants.

Exchange differences in plus shall be added to the revenue and exchange differences in minus shall be added to tax deductible costs.
As a date of payment for the differences calculation purposes shall be accepted a day of debt's settlement in any form also recoupment way of payment.

According to art. 14b taxpayers who are under obligation of income and expenditure tax book calculate exchange rate differences according to art. 24c
Taxpayers which are under obligation of full accounting (general ledger maintaining) can choose between regulations in art. 24c or regulations from act of accountancy.

Work abroad – per diem

According to art.21 par. 1 point 20, par. 15 tax free is 30% of per diem for each day when working abroad. It does not include employees which are on business trip.

Income from selling real properties

According to art 21 par. 1 point 126, art. 21 par. 2-2a, 21022, art. 28 revenues from selling real properties are free from taxation if taxpayer has been reported as living in this property for at least 12 months before the date of sale. It refers to both of helpmates.

It is obligatory to submit the statement in the proper Inland Revenue within 14 days from date of sale that the taxpayer met the rules of tax free sale.

Tax deductible costs

Art. 15 p.1 set that the costs valued in foreign currency are calculated for book up purposes according to NBP average exchange rates from the day before of getting cost.

According to art. 22 par. 5-5d in case of full accounting way of booking up (general ledger) costs which can be directly linked to the income are supposed to be booked up in proportion to period which they concern – costs linked indirectly are supposed to be booked up in the tax year of its bearing.

Used and enhanced real properties

Art. 22k par. 1 point 2-4 makes shorter period of depreciation of real properties forcommercial purposes but in period not shorter than 10 years. Taxpayers which have started to depreciate according to current regulations are allowed to continue it the same way.

Depreciation 50 000 EUR

According to art. 22k par. 7-12 small taxpayers and these who are starting the business have an opportunity to write-off the whole value in one month of tangible assets which are listed in the group of 3-8 (excluding passenger cars). Total written-off value shall not exceed 50 000 EUR.

Representation and non-public advertising

Art. 23 par. 1 point 23 eliminates non-public advertising. Every advertising costs are tax deductible costs in the whole value. But the expenses on gastronomic services, foods and drinks (also alcohol) are no longer tax deductible costs.

Tax threshold

Art 27 sets following sthresholds: 43.405 PLN , 85.528 PLN and following rates:19% , 30% 40%. Also amount deducted from tax as a free tax value – 572,54 PLN

1% tax relief

According to art 27d , 45 p.5c-5g Inland Revenue is supposed to deliver 1% of tax for nongovernment organizations (NGO) on basis of taxpayer petition in term of 3 months from deadline for annual tax declaration settlement (if it is submitted on time). In 2006 tax year it is possible to do it on previous rules.

Family relief

Art. 27f sets new family relief in value of 120 PLN for child. Together for both helpmates.

Tax from properties sales

Art 30e sets tax – 19 % from income of properties sales after deduction tax deductible costs in accordance with art. 22 p 6c. but 5 years period after which sale is out of tax still stays in force. Tax is paid in accordance with deadline for annual tax settlement.

PIT 4

According to art. 38 p 1-1b, art 42 p1-2a, art 42e p.1, 4-6 taxpayers are not obliged to submit monthly tax declarations. There is only duty to submit annual declaration till the end of January or with end of business activity.

PIT 5

According to art. 44 p 6, taxpayers are not obliged to submit monthly tax declarations. It is necessary only to pay monthly income tax advances.

Key search words for article: polish tax 2007, tax in Poland 2007, tax update poland, property tax poland, tax changes 2007 in Poland

Updated June 2008

Prices in the residential property market of Krakow stopped rising around the end of the summer in 2007, and have exhibited stability for most of the last year, characteristed by a large fall in the number of transactions being conducted, particularly over the course of last winter, together with a larger amount of supply, particularly on the primary market.

A similar trend can be observed in other major Polish cities – Warsaw, Wroclaw, Tri-City - which experienced a similar boom to Krakow, particularly in the period after EU accession in mid-2004. The experience was slightly different in the Polish cities of Lodz, Poznan and Katowice, in which prices began to move higher during 2006 and from a lower base.

The recent stability of prices can be viewed as a positive for new investors in Poland, or existing investors who wish to increase their holdings. The fact was, prices in Poland were not able to continue rising at the pace they did during 2004-2007, and a “cooling off” period was necessary. Nevertheless, several important factors indicate that the pent-up demand within Poland for property will still exceed the supply of new properties which developers can deliver to the market.

Supply

The deficit of apartments in Poland is still estimated to be around the 1 million mark. Currently in Poland, the number of apartments per 1000 inhabitants is 338, which compares to 472 in Western Europe. In addition, there is a large gap between Poland and Western Europe when considering the average size of dwellings, their standard and age. The fact remains, the majority of Poles still live in ageing block flats. In the region of 85% of the Polish population live in dwellings completed before the fall of communism in 1989.

In the past 5 years in Poland, approximately 600 000 new apartments have been constructed, representing around 5% of the housing stock. The average apartment size is increasing, and since 2007 a growth in the new supply of housing can finally be observed. Growth in supply is expected to continue in 2008, though the absence of zoning plans for many urban areas in Poland still represents a barrier to supply. In recent years, the construction industry has also suffered from labour shortages as workers have taken advantage of better paid work in Western Europe.

Demand

The strong demand from the Polish consumer for new housing has resulted from several factors. Most important has been the growth in the accessibility of mortgages to the average Pole, which is the result of increasing wages (and household wealth), and more competition in the local banking market.

In addition, the baby boomers born during the early 1980’s (the martial law years) are now entering the workforce and have a strong desire to leave their parent’s home and get on to the property ladder. Also, Poles in the 30-39 age bracket are wanting to move into larger apartments or houses due to the growth of their families. The rental market has not offered a substitute, as the supply is small and the rents are high and rising.

Future direction

Most analysts are pointing to a period of relatively stability in prices throughout 2008 and 2009, with a return to steady growth predicted from 2010 onwards.

As stated, strong and unmet demand for new property is still evident in Poland, wages continue to rise strongly (currently approx 10% per annum), consumer spending is increasing by 15-20% per annum and economic growth is around 5-6% per annum. The return of young Poles who have been working in the UK, Ireland and other parts of Western Europe is already evident, and Poland continues to benefit from access to structural funds from the European Union which are helping improve its infrastructure and stimulating the economy.

Krakow

Considered the jewel of Poland, Krakow is an historic city which managed to escape the bombing of the Second World War which decimates so many Polish cities. The growth of tourism in Krakow has been strong, particularly since EU accession. The city has always been a strong drawcard for domestic tourists, but has inceasingly come onto the radar of foreign tourists, particularly the weekend market serviced by low-cost flights to the city’s airport in Balice. The city has also witnessed strong growth in the creation of new jobs in ‘outsourcing’ and ‘offshoring’. Many international companies have been attracted to Krakow due to the large number of highly qualified graduates from the local universities. Companies such as Shell, IBM, Philip Morris and UBS have all set up large local centres.

The current average price for apartments in Krakow stands at approximately 7500 PLN/m², but this is based mainly on new-build developments in the suburbs, which dominate the supply. Throughout 2007 and 2008 a significant amount of new developments have been offered, resulting in much more choice for the average buyer. As a result, buyers have been able to be more discerning, choosing the offer which best suits their criteria, and even negotiating price discounts with developers.

The Old Town

Unsurprisingly, prices in Krakow are highest within the old town, a UNESCO protected site, and one of Europe’s most well-preserved medieval cities. Life in the city revolves around the Rynek (old town square), the largest in Europe. Many fine cobblestone streets surround the Rynek. A combination of lack of supply and the desirability of the location means that residential prices in the old town are currently ranging from 15000-25000 PLN/m².

The city centre districts outside of the Planty

Just outside of the planty, the park which surrounds the old town, but still within a 5-10 minute walk of the Rynek, prices are more reasonable, ranging from approximately 9000 to16000 PLN/m², depending on the condition and quality of the property. For example, an investor can buy an unrenovated apartment in an unrenovated building for approximately 9000-11000 PLN/m² in such areas. Renovation costs could total between 1000-2000 PLN/m². Some high-end redevelopments of old buildings, in which apartments are sold ‘off-plan’ are priced between 12000-16000 PLN/m², though potential investors should factor in the cost of internal finishing of the apartment (kitchen, flooring, bathroom etc) which could rise to 1000 PLN/m². The highest prices are for new developments in the city centre with underground parking and high security levels (24 hour porter). Hamilton May Real Estate has witnessed continued strong demand for such apartments.

The town centre region to the West and North-West of the old town – areas such as Nowy Swiat and Piasek - tends to be marginally more desirable than the other directions, as the roads are both quieter and leafier, particularly within the second ring road which is easily visible on a map. In these high-class residential areas, you will find an abundance of beautiful turn-of-the-century architecture which is so desired by many foreign investors

Kazimierz

The old Jewish district, Kazimierz, is a short distance to the South-East of the old town. Prices are comparable to the districts just outside the planty described above (9,000 to 14,000 PLN/m²), and the area is equally desirable, but for different reasons.

Kazimierz was for many years run-down, but is gentrifying rapidly and is now identifiable not only by its Jewish history (synagogues, museums, cemeteries) but also by its cosmopolitan café, bar and restaurant scene. It is also the bohemian hub of Krakow, home to galleries and the scene of regular cultural events.

As an example, if you wished to purchase a 1 bedroom 50 m² unit within a 7 min walk of the city centre or perhaps in Kazimierz, you should expect to pay approx 12,000 pln/m² for a renovated or good condition property meaning a cost of 600,000 PLN.

Old Podgorze

The Old Podgorze district is characterised by turn of the century architecture and perhaps the only truly distinct high street location outside of the city’s old town, along the road of Kalwaryjska/Limanowskiego Street. Along this high street is also the unique and attractive Rynek Podgorski market square.

Old Podgorze is an appealing residential area for locals with the open space provided by its two parks, and its border on the Wisla River. The area is currently well established as a ‘service’ area, with many utility shops providing amenities such as car repair service centres, plumbing equipment shops, fitting shops etc.

The Old Podgorze district is well connected to Krakow’s Old Town by tram and bus through the major arteries of Krakowska Street and Starowilsna Street. Travel time by tram is approximately 5 minutes and by foot approximately 15 minutes. It is also well connected to out of town locations by tram and bus.

Historically, Old Podgorze has been largely overlooked by the Krakow property market but has always been favoured by students as a less expensive but convenient location in which to live. However, more recently price increases in the in the core city centre locations, have resulted in a classic property price “ripple” effect outwards, and areas such as Podgorze have become increasingly desirable. Today, Podgorze is considered to be the most up and coming district with the most potential for development and capital growth within Krakow. Many investors and developers are now casting their eyes over this area as a sound investment location.

Anecdotal evidence of the regeneration of Podgorze is everywhere:

• The high street has been completely resurfaced, with new tram lines and underpasses installed throughout.
• A new four star Qubus hotel has opened on the riverfront.
• The recent overhaul of Podgorze’s Plac Bohaterow Getta square.
• The zoning project of Zablocie has been completed which covers a significant part of Podgorze aimed at facilitating development of this previously industrial area. The first new residential development in the area, Garden Residence, has recently started being sold ‘off-plan’.
• A new shopping plaza and cineplex, Galeria Kazimierz, completed in March 2005, is within five to ten minutes walk from Podgorze.
• There is a wave of new residential developments in the area. The Vistula shirt factory on the riverfront recently changed hands to a local property developer and is awaiting planning consent for a large residential complex.
• Schindler’s factory to be renovated into an art museum by local entrepreneur. Krakow deputy mayor Tadeusz Trzmiel was recently quoted as saying: "The establishment of a museum in this historic factory is part of the rehabilitation of the industrial area of Zablocie”.

Currently prices in Podgorze range from approx 7500 PLN/m² for unrenovated properties to 12000 PLN/m² for top-end new builds and renovated historic properties.

Other desirable areas

Nowa Wies, Czarna Wies, Zwierzyniec: these districts are outside the second ring road to the west of the old town, and offer leafy streets with a combination of period and newer buildings. These areas are located close to the AGH University, beautiful Park Jordana and the vast Blonia field. Walking distance to the old town is approximately 15-20 minutes.

Kleparz: north of the old town, 5-10 minute walk. Near Nowy Kleparz market and Dluga Street, a main shopping thoroughfare.

Stradom: located between the old town and Kazimierz, many desirable buildings and quiet streets.

Wesola: to the East of the old town, many leafy streets. However, the area is intersected by a main train line.

Salwator: located slightly South-West of the old town, this district is sandwiched between Krakow’s largest park, Blonia, and also the Vistula river. It is considered by locals to be one of the most desirable residential districts in the city, and is much in demand because of its relative tranquility and short distance from the city centre.

Wola Justowska: this region is again to the West of the city, but further out beyond the greenery of Blonia and Salwator, en-route to Balice airport. This is the district of choice for Krakow’s wealthy and is dotted with substantial residences which often match the price per square metre of the more desirable central districts.

Suburban Krakow and new-build residential developments

Further out from the centre, prices are significantly lower, with a large supply of new build developments, which are primarily being bought by Poles. Such properties sell for 5500-8000 PLN/m².

If you are considering buying such a property off-plan, it is advised that you take the time to visit the site. Whilst some developments can appear attractive on paper, sometimes the surrounding buildings, such as Soviet built panalaks (blocks of flats) may detract considerably from new build property.

Off plan and new build developments in the centre of Krakow

New build developments do occur in and around the centre, but are less common as brown-belt land is scarce. Quality central new-build developments (such as Vistula Terraces, Noble Residences, Garden Residence) sell for 7500-12000 PLN/m² and will most likely come with parking (typically 30000-40000 PLN per space + VAT).

Centrally-located developments are more typically renovation projects of traditional town houses/buildings (Kamienica), although frequently new extensions or floors are added. Such projects are becoming increasingly popular with foreign investors as it allows them to purchase a traditional apartment, renovated, with new installations. They are also sold off-plan and are more often than not sold out in the early stages of construction, however, rarely come with parking facilities, which can be viewed as a disadvantage. Because it is difficult for developers to buy entire buildings in the centre (due to the presence of ‘protected’ tenants), such developments are in short supply and the prices are high in comparison to the rest of the property available in Krakow.

Prices in Krakow compared to Warsaw

The average prices in Krakow are cheaper than in the capital, Warsaw, where the average price per m² is almost 9000 PLN (compared to 7500 PLN in Krakow). However, it is difficult to make comparisons between the two cities as the geographical layouts are very different. Warsaw is much larger and more spread out, so districts overlap and are more difficult to define than in Krakow, which is much more compact and centred around the three old areas of Stare Miasto, Kazimierz and Stare Podgorze.

By Andrew Balfour

The central area of Krakow is dominated by old tenement buildings (Kamienica in Polish). Many of these ornate buildings in the heart of the city date from the late 19th century, whilst areas a little further out are dominated by less aesthetically attractive buildings from the 1930’s.

With regards to the second-hand market in central Krakow, there are several possibilities for what you can buy:

• 1. Renovated apartment in renovated building.
• 2. Renovated apartment in unrenovated building.
• 3. Unrenovated apartment in renovated building.
• 4. Unrenovated apartment in unrenovated building.

For areas near old town and Kazimierz, the most desirable properties fall into category number 1. Prices for such apartments are already high – within the old town itself, prices are now approaching 20000 PLN/m². Within 10 minutes walk of the old town, in nice residential streets, expect to pay in the region of 12000-14000 PLN/m².In addition, it should be noted that when a entire (empty) building is renovated, the apartments will normally be sold as a shell for individual finishing. This will add approximately 1000 PLN/m² to the cost, depending on the quality of materials etc.

Category number 2 is more complicated, because there needs to be agreement between all owners about doing work on the façade, common areas and installations of the building. Prices for such apartments can still be up to 10000 PLN/m².

Category number 3 is a good option – we recently sold an apartment of 48m² in the heart of Kazimierz in a building which is being completed renovated for 9500 PLN/m². The internal renovation of the apartment will cost approx 1000 PLN/m².

Perhaps the greatest potential for capital growth is in category number 4. In areas close to the old town and Kazimierz, prices for such apartments are approximately 6500-7500 PLN/m². In most cases, there is at least a plan to renovate the building, though this may take time. The other issue is finding reliable people to carry out renovation work, but this is something we can help you with. Most foreign buyers tend to avoid Nr 4, because of the potential pitfalls in old buildings (such as old installations etc) and being too far away to monitor and organize renovations.

Contact us for details of properties currently available on the secondary market in Krakow at present.

By Andrew Balfour

The Krakow property market continues to go from strength to strength in recent months. Ongoing interest in the market from overseas investors, particularly the British and Irish, coupled with a lack of supply of the most desirable properties, is pushing up prices.

The most sought-after area continues to be the old town, within the green belt (planty). Prices for renovated apartments within the old town are now around 4000-5000 EUR/m² – you know prices are high when they are quoted in EUR rather than PLN.

Outside of the planty, residential areas within the second ring road continue to be favoured, particularly areas to the west, including Nowy Swiat and Piasek. Several off-plan new build developments have been sold recently. Angel Plaza, on Zwierzyniecka Street (behind the Sheraton Hotel), is completely sold out at prices of approximately 10000 PLN/m². Sobieski Residence from Bryksy Group is being sold off-plan in Lobzowska Street, and there is only a handful of apartments still available at prices between 9000-12000 PLN/m². Apartments in renovated kamienicas (old townhouses) in these areas are being marketed for up to 14000 PLN/m² off-plan.

The Jewish district, Kazimierz, is also a favourite destination for investors and prices are rising, though are still lower than the districts mentioned to date. The gentrification of this area continues apace, with a growing array of restaurants and bars. Several luxury new-build developments are being sold off-plan in the area at up to 12000 PLN/m², though renovated apartments are still available sub-10000 PLN/m².

The most talked about district in Krakow at present is Old Podgorze. After the old town and Kazimierz, Podgorze is the third old part of Krakow and was once a city in its own right. During the second world war, Podgorze was the site of the Jewish ghetto and Schindler’s factory, and has a beautiful market square and churches. Whilst Podgorze is still somewhat ‘rough and ready’, and lacks the café and restaurant culture of Kazimierz and the Old Town, it is still close to the river and city centre, and over the next 5-10 years has excellent potential for those who have been priced out of the old town and surrounds. Prices for new-build developments in Podgorze are approx 6000-8000 PLN/m², and older apartments can be picked up for similar amounts.

Another area which should definitely not be discounted is Salwator. Nestled between the Wisla River and the vast Blonie Field, it contains some lovely quiet residential streets. Prices are on the rise, but the investor can still expect to pay in the region of 7000-10000 PLN/m².

For those who have been priced out of the central areas of Krakow, new-build developments in the suburbs are a cheaper option. Primarily marketed towards the burgeoning Polish middle class, and attracting largely young first-home buyers, these developments are being sold off-plans for prices around 3500-6000 PLN/m². Whilst such suburban developments are often high-rise, the suburbs of Krakow are well served by local amenities and generally have good transport links to the city centre. Areas in which lots of new development is occurring include Prądnik Czerwony, Łobzów, Dębniki and Bronowice.

A last option to consider is new developments taking place in Krakow’s surrounds. House and land packages within or just outside the city limits are increasingly available. These properties are still within 10km of the city centre, but offer detached or semi-detached housing with a private garden. Prices for the housing can start from 2500 PLN/m² with an additional charge of around 10000-15000 PLN for each 10mX10m parcel of land it sits on.

Updated 05/06

Office space*

New office space available for lease in Krakow currently stands at approximately 131,000sqm. This is roughly equally distributed between the city centre and less central locations. Demand for office space in Krakow continues to grow.

15,000sqm of new office space was leased in 2005 and this is expected to increase to 20,000sqm in 2006. The IT industry is predicted to be the principal acquirer of new office space.

In 2005, high quality office rents remained stable at a range of 12 to 15 Euros/sqm per month. Rents for secondary office buildings also remained stable at a range of approximately 9 to 12 Euros/sqm per month.

Retail space*

Total modern retail stock in Krakow is currently in the region of 293,000sqm. This is predominantly out of town shopping centres, clustered around high population residential districts. Supply of retail space continues to grow with 38,000sqm delivered in 2005 and with the completion of Galeria Krakowska due for completion in autumn 2006. This development scheme, know as ‘new town’, will offer more than 250 stores with a total lease area of 60,000sqm. 12 months prior to opening 90% of the retail space had been reserved.

Demand for modern well located retail space is still outstripping supply in Krakow. City centre street locations can expect to generate 40 to 70 Euros/sqm (approximately 27 to 47 GBP) per month and shopping centre plots typically around 30 Euros/sqm per month.

* Ober Haus – Real Estate Market Report 2006.

Supply and demand

Supply of property remains low, particularly in the city centre where there are currently very few new residential developments. However demand remains high with continued interest from foreign investors and rising domestic demand.

Some of the reasons for the shortage of new residential developments in the city centre are as follows:

• Few brown field sites.
• Problematic building ownership issues (e.g. missing owners, multiple and sometimes disputed ownership).
• Condensed city centre relative to overall city size therefore few opportunities relative to market size.
• Relocation of administrative tenants can cause delays to construction.
• A number of buildings have historical “protected” status.
• Only 3% of city has been “zoned”. This means every development planning application is considered on its own individual merits. This results in a long and time consuming process for obtaining planning consents.
• Local sellers with property in the city centre have started asking ludicrously high prices and fluidity in the market has suffered.
• Neighbour objections.

As a result of this supply shortage, central new developments are generally sold in their entirety, off plan, before construction even begins. Typically sales are completed in extremely short time frames with payment structures favouring the developer. This often requires the buyer to pay the majority of the purchase price before completion. This allows construction costs to be self-financed by advance stage payments on development unit sales.

Another feature of Krakow’s property market is the Soviet built Nowa Huta region of the city. Over 200,000 people live there in sub standard “Panalak” buildings. It is likely that much of this housing stock will need to be replaced in the forthcoming years to improve the general quality of the housing stock in Krakow.

Prices

Since shortly prior to EU accession, property prices in Krakow city centre (within a 5 to 10 minute walk from the Main Market Square) have more than doubled. Top end residential developments are now priced at up to 10,000 PLN/sqm (approximately 2,658 Euros/sqm and 1,804 GBP/sqm) and out of town new build developments at 4,000 to 5,500 PLN/sqm (approximately 992 Euros/sqm and 722 GBP/sqm) (e.g. Salwator Tower - 5,450 PLN/sqm). These price rises have been driven by a combination of foreign investors and wealthy locals who are now starting to look for alternative locations. There is still considerable momentum in the Krakow property market, which is likely to continue to push prices up in the short to medium term.

It is unlikely that the overnight returns seen in the past two years are to be repeated. That said the ingredients are certainly present for consistent long term capital growth to remain in place for the next 5 to 10 years.

Buyer profiles

The price bracket in most demand amongst the majority of foreign investors and wealthier locals is from 300,000 PLN to 500,000 PLN (approximately 70,000 to 130,000 Euros or 50,000 to 90,000 GBP). Investors expect to afford a two bedroom apartment at the upper end of this scale. With city centre prices now in the region of 10,000 PLN/sqm (approximately 2,658 Euros/sqm and 1,804 GBP/sqm), this is no longer achievable in the core city centre locations.

Much of the demand from the local market is being created by the emerging middle class that includes families, young couples and young professionals. This has meant demand is not just speculative.

Price sensitivity amongst locals is driven by affordability with a general consensus that exposure to the property market is essential before prices rise too high.

For foreign investors, price sensitivity is being generated more by rental yields and perceived value for money relative to their home market, as well as budget limits for an overseas investment. The average foreign investor will typically expect to borrow up to 70% “loan-to-value” from a local lender, and expect the rental yield to cover his mortgage repayments. The typical foreign investor usually resides in a mature “buy-to-let” environment and is therefore highly sensitive to the ability to rent the property and the risks of not renting it.

Rental market

An important consideration for the foreign investor is the rental potential of a property. As a sense check, a centrally located, renovated one bedroom 50sqm apartment would rent for approximately 400 Euros (approximately 270 GBP) per month. This provides an approximate gross yield to the investor of 5.5%. 400 Euros per month is an affordable rent for locals based on two sharing.

New locations

Foreign investors and locals are beginning to look more closely at secondary city centre locations. Locations benefiting in particular from the “overspill” from the core city centre are those areas that have good transport links to the city centre and independent infrastructures. Such areas include Podgorze and the Krowodza district, located on the outer side of the second ring road to the west of the city. Prices here are still considered to be reasonable, and respectable rental yields can still be achieved.

Car parking

Lack of car parking is becoming a serious problem in Krakow’s city centre. Most old buildings offer no parking or only “on street” parking, making it difficult to find a parking space in the centre. The lack of car parks is compounded by the fact many of the Kamienca buildings in the Old Town contain basements which are difficult to adapt into underground car parks.

Despite relatively low levels of current car ownership, the emerging middle class will increase levels of car ownership. This has lead to new build developments with secure parking becoming especially popular, with some locals purchasing only a car parking space within a new development.